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07/19/2001

Worldwide PC Market Declines for First Time Ever as
Asian Markets Slow and U.S. Slump Continues According to IDC

FRAMINGHAM, MA – JULY 19, 2001 – The worldwide PC market was stagnant in the second quarter of 2001 with shipments declining by 2%. According to IDC research, shipments of 29.8 million were down 7.2% sequentially as growth from Asian markets evaporated amid a continuing U.S. market slump.

The Japanese market, which managed 30% growth in 2000 in a moderate economic climate, gave in to worsening economic conditions. Shipment growth in the second quarter of 2001 was essentially flat, as consumers and businesses postponed or cancelled purchases.

"The cumulative impact of a worsening economy, declining capital investments, and reduced consumer spending is strongly affecting the Japanese market," according to Loren Loverde, director of IDC’s Worldwide Quarterly PC Tracker. "Although the Japanese market resisted for a while, it now looks like the PC market in Japan will be flat to negative into 2002."

Other Asian markets were also affected by economic and currency issues. China and India, which have been the primary growth engines in the region, slowed notably in the second quarter as consumer spending softened and government technology spending declined. Growth in Australia and South Korea, other large markets in the region, also declined notably.

Growth in Europe also declined although not as dramatically. The region has been balancing softening consumer demand, with growing commercial spending. These trends did not change dramatically in the second quarter, although commercial spending growth was mild, and portable PC shipments slowed significantly from the past several quarters bringing overall growth down.

PC shipments in the United States were just below forecasts with a year-on-year decline of 8.1% and 1.3% sequentially in the second quarter of 2001, according to IDC. Given that average sequential growth in the second quarter from 1994 to 2000 has been 4.1% (with the only sequential decline during that period being 2000), the sequential decline from the first quarter of 2001 was below the historical pattern, but not a disaster.

"Although shipment levels in the United States remain depressed, the seasonal pattern appears to be holding, albeit at a lower level than last year. Businesses are spending cautiously, and consumers have still not emerged from their shells, but there is some hope that the worst is behind us," said Roger Kay, director of Client Computing at IDC. "Toward the end of the year, we expect a modest boost from the back-to-school and holiday seasons, aided by a mild stimulus from Windows XP deployment, particularly in the home."

Vendors

Dell’s aggressive pricing and ability to react quickly to changing market conditions allowed the market leader to further distance itself from competitors. The company was alone among the top vendors in growing shipments and market share as its rivals struggled to preserve volume and protect margins. Dell far outpaced growth in all regions, including 10% growth in its core U.S. market, and over 40% growth in the rapidly slowing Asian markets.

Compaq, HP, and Gateway had a particularly tough time in the U.S. facing pricing pressure with continued low demand in the consumer space. IBM likewise grew slower than the market in the U.S., despite a much larger commercial focus. These three vendors chose not to match Dell’s price reductions and paid the price in market share.

Slowing consumer demand in Japan strongly affected Compaq and IBM’s year-on-year growth as both had large shipments of low-cost consumer systems in Q2 2000. Sequentially, Compaq and IBM did well in Japan, and were fairly close to market growth outside the U.S. and Japanese markets.

Compaq was able to significantly reduce overall inventory during the quarter, which should improve the company’s position going forward. HP continued to do well in Europe but struggled with the slowing markets in Asia.

Fujitsu Siemens, with sales concentrated in Germany and Japan, struggled with the economic conditions in these markets keeping shipments roughly flat year-on-year, but declining sequentially.

Table 1

Top 5 Vendors, U.S. PC Shipments, Second Quarter 2001 (Preliminary)

(Thousands of Units)

Q2 2001 Q2 2001 Market Q2 2000 Market Growth

Rank Vendor Shipments Share Shipments Share 2001/2000

1 Dell 2,519 24.0% 2,293 20.1% 9.8%

2 Compaq 1,332 12.7% 1,693 14.8% -21.3%

3 Hewlett-Packard 991 9.4% 1,221 10.7% -18.8%

4 Gateway 798 7.6% 964 8.4% -17.2%

5 IBM 638 6.1% 713 6.2% -10.6%

Others 4,224 40.2% 4,542 39.8% -7.0%

All Vendors 10,501 100.0% 11,426 100.0% -8.1%

· Vendor shipments are branded shipments and exclude OEM sales for all vendors and represent shipments to distribution channels or direct to end users.